PES to shut Pennsylvania refinery: Update

Adds detail throughout.

The single largest US Atlantic coast refinery will shut operations and seek new ownership following a devastating fire and amid ongoing financial difficulties.

Philadelphia Energy Solutions (PES) confirmed it would shut its 330,000 b/d refinery in Philadelphia, Pennsylvania.

"While our teams include some of the most talented people in the industry, the recent fire at the refinery complex has made it impossible for us to continue operations," chief executive Mark Smith said. "As part of the wind-down, the company will position the refinery complex for a sale and restart."

PES offered a political backdrop on national fuel policies, manufacturing jobs and regional fuel infrastructure but struggled in the competitive New York Harbor fuels market. Closing would remove a significant supplier of fuel to central and western Pennsylvania but held less certain consequences for the New York Harbor market. Physical trade was subdued today as vessel rates and July Nymex RBOB futures shot higher on news of the closure.

Three early morning explosions belched fire over southern Philadelphia late last week and triggered a blaze that burned for more than two days on the refinery's 20,000 b/d hydrofluoric acid alkylation unit. The dramatic fire left four workers with only minor injuries.

It was the second fire in less than two weeks and a crippling blow to a facility that emerged from bankruptcy proceedings less than a year ago. Crews were working last week to restart a fluid catalytic cracking (FCC) unit following a 10 June pump fire on the 48,000 b/d unit. PES said the fire, which occurred in a separate plant at the facility, was unrelated to last week's explosion.

The blaze may have destroyed the alkylation unit, but fell far short of devastating the entire refinery. Yet PES would have struggled to find support for repair and continued operations as its finances dwindled following bankruptcy proceedings last year. The company reported about $86mn of cash-on-hand at the end of the first quarter, down from $149mn at the end of October, according to bankruptcy filings. Long-term debt increased by about 7.5pc to $755mn over the same period.

United Steelworkers Local 10-1 did not have an immediate comment following the announcement.

Clean product tanker prices rose in response to last week's blaze, anticipating a surge in import demand to make up for even a temporary shutdown. Nymex RBOB prices rose by 4pc following the blast, and jumped overnight by another 6pc from yesterday's settle, to $1.9787/USG, before moving back to $1.9381/USG during the opening hours of US futures trade.

But physical fuel markets in and around the New York Harbor have budged little, waiting for a more concrete PES response.

Former majority owner Sunoco planned to shut the refinery in 2012, joining a wave of planned east coast and Caribbean refinery capacity reductions. Three Pennsylvania refineries faced closure after years of losses and a dependence on costlier Atlantic basin crude. A successful union and political push, as well as potential natural gas processing from nearby shale fields, drew a new partner , Carlyle Group, to inject funding and continue operations as a joint venture.

The refinery's position at Philadelphia's rail yard made its access to a new boom of Bakken crude the envy of the region a year later. PES pursued a midstream logistics master limited partnership and grew its railed Bakken throughput to 280,000 b/d in 2014. That arbitrage collapsed in 2015 as the refinery worked to take that midstream subsidiary public. Months later, President Barack Obama's administration would lift the crude export ban, granting bottlenecked US production access to new markets and squashing the east coast's midcontinent crude profitability.

The refinery's first quarter waterborne imports of north Atlantic and west African crude averaged roughly 150,000 b/d, well below capacity.

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